Market

Sunday, November 6, 2011

THE GREAT MILK "WAR" IN AUSTRALIA-WHAT ARE THE IMPLICATIONS?

In a free market competition is supposed to set the prices for consumer products and theoretically such competition should be benefiting the consumer community. However if the competition gets too hot it can kill the industry by adversely affecting their bottom line as is happening now in Australia. Given below is an extract from a report from Australia, one of the leading dairy producing countries in the world regarding the plight of the dairy industry due to fierce price war currently raging in that country:

"Minister, Senator Joe Ludwig's future plans to protect Australian farming, has received a grilling by journalists critical of government attacks on farming. Senator Ludwig declined to join in defence of the dairy industry in the destructive supermarket fight over discount milk. He gave no assurance to abattoirs threatened by his Government's carbon tax and was challenged never to repeat his disastrous ban on live cattle exports. Months of consultation and industry and parliamentary scrutiny lie ahead in the development of the government's National Food Plan, which was launched by Senator Ludwig on Wednesday at the rural press club of Victoria. "I like milk," he told journalists who asked whether or not milk was too cheap at a dollar a litre. The Senator said the value of farm-gate contracts for milk supply had improved on average by 3 percent. "It is important that we grow milk production, but price is a matter for retailers," he said. Milk processor, Lion Dairy, with billions of dollars worth of dairy assets in Australia, has warned of dire consequences from the discount war, saying its return on investment has fallen below zero. It forecast "lots of losers" among milk distributors, franchisees, small outlets, vendors and consumers because of the predatory impact of discounting on branded milk sales".

In India prices of dairy products are set by the cooperative dairy organizations which are mostly "controlled" by the state governments and private players, many of them set up relatively recently, have no choice but to fall in line with the price levels set by cooperatives. Australian situation is worth watching and further details can be had from the web site above.